Withholding Tax

Withholding Tax

Income for certain payments and activities or services is taxed when the income is paid or received.

Residents and ‘Timor-Leste Permanent Establishments of Non-residents’

The types of income and rates of tax applicable to residents of Timor-Leste and Timor-Leste permanent establishments of non-residents are shown in this table.

Type of income

Rate

Royalties

10%

Rent from land and buildings

10%

Income from prizes and lotteries

10%

Income from construction and building activities

2%

Income from construction consulting services including project management, engineering design and site supervision services

4%

Income from the provision of air or sea transportation services

2.64%

Income from mining and mining support services

4.5%

A permanent establishment means a fixed place of business through which the business is wholly or partly carried on, like an office, factory, or workshop.

Non-residents Without a Permanent Establishment in Timor-Leste

The withholding tax rate for income paid to non-residents without a permanent establishment in Timor-Leste is 10%.

Rent Payments: payer withholds the tax, unless payer of rent is an individual

All rent payments are subject to withholding tax which is required under the law to be withheld and remitted by the payer (Section 55, Taxes and Duties Act).

The exception is if an individual is paying the rent, in which case the payer is not required to withhold and remit. Rather, the recipient of the rent payment is required to self withhold and remit the withholding tax. This is the case regardless of whether the recipient is an individual too or a business or enterprise.

If the recipient required to withhold tax is an individual, then the withholding tax is a final tax and the recipient is not required to lodge a return which includes the rental income.

All other non-individuals (non-individual enterprises, legal persons or entities) must include the income in their annual income tax form, at which time they receive a credit for the withheld tax. At this time they can also claim deductions for expenses incurred in deriving the rental income.

How to Pay Withholding Tax

The withheld tax is required to be remitted no later than the 15th day of the month following the month in which the amount was withheld. Complete 3 copies of the Monthly Taxes Form. See How to pay taxes for further details.